By James Kwak
Calculated Risk says there is a deal (bullet points are from his post):
- Income eligibility for first-time home buyers stays at $75,000 for individuals, and $150,000 for couples.
- For move-up buyers, income eligibility is $125,000 for individuals and $250,000 for couples.
- There is a minimum 5 year residency requirement – in their current home – for move-up home buyers.
- The tax credit is the lesser of $7,290 or 10% of the purchase price.
- The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)
- Expect bill to be signed by Friday, packaged with the unemployment benefit extension.
So my wife and I fit under the $250,000 couples limit. We’ve lived in our house for eight years. So now the government is willing to give me $7,000 to buy a new house? That would be a sale that wouldn’t have happened otherwise — but what good would it do the economy?
As I tried to explain previously, an $8,000 credit for first-time homebuyers will raise prices by less than $8,000 (leaving aside the effect of leverage for simplicity), because demand at any price point only goes up for first-time homebuyers, not all homebuyers. That means that the buyer gets a fair chunk of the subsidy. But vastly expanding eligibility like this (about 67% of households own houses, and probably about half of them have been in the same house for five years) increases the amount by which prices will go up, which lowers the buyer’s share of the subsidy and increases the seller’s share.
